In return, the ROH has agreed a deal under which it will reduce seat prices and increase public access.
The radical new arts budget announced by the Arts Council chairman, Gerry Robinson, also includes rewarding the National Theatre for excellence with a 9 per cent or pounds 1m rise, and giving similar uplifts for quality to the Birmingham, London, and Bournemouth Symphony Orchestras.
But the Royal Shakespeare Company, which has followed government and Arts Council wishes by doing far more work in the regions, is punished with only a 5 per cent grant increase.
Mr Robinson said the RSC needed help and had problems: "We will be meeting in the new year to talk about it. Their problems are substantial and not even an increase of 10 per cent would have been enough to sort them out."
He added that the RSC had "tried to do too much".
An RSC spokesman said: "We will not be able to balance the budgets in the year 1999-2000 on this grant increase. Our problem has been that our grant has been eroded by 15 per cent over the past five years."
The key message in the overall grants announcement is that the days of across-the-board increases of the same percentage are over. Organisations deemed to be performing well are being rewarded with large increases.
Those thought to be doing badly get the minimum.
The exception is the Royal Opera House which, as expected, gets a massive increase to put its house in order, though less than the doubling of its grant that its chairman Sir Colin Southgate originally demanded.
Covent Garden's grant will be lifted by 11 per cent to pounds 16m in 1999 and then up to pounds 20m in the two subsequent years. The Covent Garden site is being rebuilt at a cost of pounds 218m, pounds 78m of which comes from National Lottery funds.
But a cash crisis in funding day-to-day activities means the Opera House will virtually close throughout next year. Mr Robinson said the cash was being awarded primarily to support the production of world class ballet and opera.
The "strings" are that the building is opened up to a wider audience; ticket prices are brought down, and the educational programme is enhanced. No money would be released until the Arts Council was satisfied with the plans.
Yesterday's grants decisions were condemned by the Independent Theatre Council (ITC) which represents 80 per cent of the touring drama companies funded by the Arts Council.
Nicola Thorold, ITC director, said only standstill funding had been given to all the black and Asian companies and half of the specialist educational companies. She said it was "indefensible."
Mr Robinson also indicated that the decision by Chris Smith, Secretary of State for Culture, to form an efficiency squad in the Culture Department had caused a rift between them.